final shezan strategic analysis planning
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ACKNOWLEDGEMENT
We would like to express our gratitude to all those who helped us during the whole of our
project. We gratefully acknowledge the help of our course supervisor, Mr. Naveed Anwar who
offered us invaluable advice throughout the project. He has spent time and energy to aid in the
completion of this project and none of this would have been possible without his patient
instructions, insightful criticisms and expert guidance.
MBA-V
Team Members:
Altaf Hussain Khaskheli
Yousif Altaf Jatoi
Javed Ahmed Shaikh
Muhabat Khan Junejo
Dated: 13-12-2013
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EXECUTIVE SUMMARY
Shezan International Limited was incorporated in 1964 as Pioneer in juices in Pakistan, having mission to produce
the largest food processing unit to meet the country’s local as well as export needs. Since then it
has continued to provide quality products to its customers with products and packaging
innovations. This report covers broad areas of marketing, finance, management and operations of
Shezan international limited.
An important part of this report comprises of financial analysis of Shezan international limited
with its two major competitors Nestle and Tops. The analysis of the company is done through
different measures and tools of analysis used by analysts in order to analyze companies. These
measures include the analysis financial statements, short-term liquidity analysis, capital structure
and solvency ratios, return on invested capital ratios, asset utilization ratios and analysis of profit
margin ratios etc. The study covers all the aspects usually considered by the stakeholders of the
company. The profits and losses, liquidity position, changes in owner’s equity, movements in
assets and liabilities, and all such factors will discussed later in the report.
Another important portion of the report comprises of the current operations of the company,
which is the strategic management. A comprehensive detail is provided about the company’s
strategies devised to maintain and develop the product line of juices. The results have been
interpreted and critically analyzed to propose new strategies for the improvement of Shezan
international.
These new strategies aim to build a better image for Shezan international. In addition to its
image, the proposed strategies will also help in achieving lower costs through better distribution,
efficiency in operations and revamped marketing plan to better position and sell Shezan juices.
The strategies will help Shezan juices to compete with firms like Nestle.
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Introduction:
Shezan International Limited is a Private Limited Company, with the main objective to set up an
industrial undertaking for manufacturing of juices, squashes, sherbets, jams, pickles and
preserves from fruits and vegetables. Shezan International Limited was conceived as a
joint venture by the Shah Nawaz Group of Pakistan and Alliance Industrial
Development Corporation of U.S.A. The agricultural background of the Pakistani sponsors
induced them to establish this agro-based industry. Taking advantage of abundance of fruits
available in Pakistan and the advanced technology provided by the American partners, Shezan
became a pioneer in the field of converting fruits into pulps, concentrates and juices. Today
Shezan is the largest food processing unit having developed and installed the capacity to meet
the country's local as well as export needs.
Brief History:
Shezan Company was incorporated on May 13, 1964 as a private limited company, with the
objectives as set out in the Memorandum of Association in general and in particular to set up an
industrial understanding for manufacture of juices, squashes, sherbets, jams pickles and
preserves from fruits and vegetables. Nature has blessed Pakistan with an ideal climate for a
wide range of delicious fruits. Over the centuries Pakistani experts have acquired and developed
unique strains of exotic fruit varieties, unmatched for their rich flavor and taste Shezan
International Limited was conceived as a joint venture by the Shah Nawaz Group of Pakistan and
Alliance Industrial Development Corporation of U.S.A in1964. The agriculture background of
the Pakistani sponsors induced them to establish this agro-based industry. Taking advantages of
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abundance of fruits available in Pakistan, and the advanced technology provided by the
American partners, Shezan became pioneers in the field of converting fruits into pulps,
concentrates and juices. Today Shezan is the largest food processing unit having developed and
installed the capacity to meet the country’s and export needs. In 1971 the Shah Nawaz Group
purchased all the shares of Alliance Industrial Development Corporation with the permission of
the Pakistan Government. The Company has since shown sustained growth in both the domestic
and exports fields. The Company has been steadily expanding its production capacity over the
years. In1980-81 a separate unit was installed in Karachi which now caters for Karachi, Sindh
and export demand. A new bottle filling plant was set up in1983 in Lahore unit increased the
capacity five-fold. An independent Tetra Brick Plant was commissioned in 1987 making us the
leading manufactures with comprehensive range of production in the fruit processing field in
Pakistan
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Vision:
“To be known as leader of quality products in the region. Dedication to quality is a way of life at
our company. In its activities the company will pursue goals aimed at the achievement
of profitable business .these results will be derived from the dedicated efforts of each employee
in conjunction with supportive participation from management at all levels of the company. To
pay its role in the economic development of the country and to enhance quality of life of
its people”
The vision statement should be brief and simple enough to understand by
the stake holders. It should be specific and depict the clear picture of the
company.
Mission statement:
“Our mission is to provide the highest quality fruit and vegetable related juices and products to
retail and food services customers.
We will accomplish this by maintaining a tradition of pride in our products, growth through
innovation, integrity in the management of our business and commitment to team management
and quality improvement process.”
The current mission statement of Shezan international is very market
oriented where as in recent perspective the use of customer oriented
mission statements are better to understand by the customers as well as
they are easy to attach with them emotionally.
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Values:
Integrity & Ethics
Shezan has an open disclosure policy and transparent processes. All business activities
transactions are carried out honestly and with fairness; results are achieved through
demonstration of honest and ethical behavior
People
Have passionate people with intelligent and firm approach towards business. To facilitate these
people Shezan gives them challenging opportunities, training, and fun loving environment,
necessary resources and facilities. Public recognition of talent is a priority.
Innovation
Innovation is the way of life at EFL. It is valued, encouraged and rewarded in all aspects of
operations.
Safety, Health & Environment
Shezan manages and utilizes resources and operations in such a way that the safety and health of
their people and neighbors.
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Squashes
Juices
Chutney
Ispaghol
Pickles (in vinegar)
Fruits (can)Vegetables (can)
Salt
Pickles (in oil)
Vinegar
Ketchup
Product Mix:
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Objectives:
Objectives are the steps which you take in practical to get or achieve short
term as well as long term goals. The objectives can be of three categories
depending upon the time frame attached or associated with that goal, it may
be short range, medium or intermediate range and long range.
As it has been so clear by the mission statement of Shezan international that
what are their major and prime objectives but let us list them here again to
make it quite clear, simple and easy to understand.
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To put it’s all efforts to become industry leader in the industry.
To keep focused and determined to provide best quality fruits and
vegetables product
To be committed to provide excellent and quality juices and nectars to
their consumers
To keep an eye on the fruitful investments and opportunities in new
projects
To achieve better production facilities
To manage the operations of the company in effective and efficient
way
To cope up with the technological advancement and keeping up to
date
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Industry Structure:
The beverage industry of Pakistan has seen many rise and fall but one can
say with full assurance that it has growing with the years. The industry
consists of the product categories such as soft drinks, juices, syrups, milk
and squashes, although Shezan international doesn’t have all these
mentioned categories yet it falls under the beverage industry. According to
the Stats there are currently 170 units operating and both upstream and
downstream industries have on rise and are growing significantly. There is
very high profit margin in the industry and has witnessed a significant
increase over the years.
The growth of this sector has been hit badly with the decrease in purchasing
power of the consumers. Inflation and conditions of Pakistan has caused the
growth a bit slow. Poverty has been increasing in Pakistan and thus the
purchasing power is decreasing with the years. The competition has also
increased in few years due to easy import of the products.
Research has also shown us that the term of health consciousness is
widening its arms very rapidly and just because of this consumer prefers to
have low calorie and diet juices or squashes rather than the regular ones.
Future growth of this sector and industry is more likely to rise on a slower
pace because of the intense competition between the local and imported
products. The more innovative products will come up in the market making
consumers to think twice to purchase a product.
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Distribution of the products is more likely to increase up to the far rural areas
with time and this factor is very important in the growth of this industry. It is
more logical to think in a way that people will get aware and aware about the
products and thus the increase in sales and revenues will occur which in turn
will make this industry grow.
The overall industry attractiveness and industry structure is better illustrated
by Porter’s five forces model:
Porter’s five forces model:
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Potential entrants
Low switching costs
economies of scale
favourable government policy
Suppliers
Large number of buyers
like nestle, tops,
country.
Low switching costs
Substituteraw material
Threat of forward
integration
Buyers
Large no. of buyers
Substitutes like nestle,
country available
Low switching costs
Threat of backward
integration
Substitutes
Similar tasting juice (country,
tops, nestle)
Same price
Same identity.
Degree of rivalry
Many competitors (nestle,
country, tops etc)
Low product
differentiation
Growing industry
Other stakeholders
Unions, government
etc.
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The juice industry is attractive for new market entrants. The reason being that due to high
demand it is easy to achieve economies of scale. The government policies are also favorable for
the industry and the exit barriers are not too high as well.
The buyer strength in the industry is however is high. Many substitutes are available and the
switching costs are low. The same is for supply side which is good for producers as it means less
bargaining power of suppliers. Supplier switching costs are low and firms can and do forward
integration.
As far as substitutes are concerned, there are number of substitutes available. These juices are
really close substitute offering the same benefit. The competing brands also have a similar
product identity or perception. The industry is growing as new entrants are continuously coming
in. This has increased the competition to a great deal.
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Product Positioning:
Positioning is the perception of a product or service in the mind of the people. Positioning of a
product allows it to be seen or perceived in a certain way by the target audience. To have a
successful strategy and product, effective positioning must be done. Without strong positioning
no matter what the product is, it’s going to fail.
Shezan international has positioned Shezan as a low quality affordable juice drink. The
perception has been created in the minds of consumers that Shezan is an affordable juice with
good taste. To support this positioning strategy, Shezan has been priced reasonably well below
the competing high quality juices like nestle.
The target market for Shezan is the middle income group and lower middle. The people Shezan
is targeting are mostly young adults and teenagers. The placement of the product has also
contributed to its low quality positioning. Mostly Shezan juices can be seen at small retail stores,
school cafe and canteens. The presence of Shezan in superstores and big markets is nonexistent.
This may be due to the placement strategy or due to the shelf space in stores.
The company has also created this perception through various advertisements showing young
teenagers drinking and getting refreshed by the juice. These school and college going students
also symbolize that it’s not expensive and is pretty affordable. The price of the juice is also one
of the lowest in the market hence making its perception of low quality juice.
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Another factor contributing to this perception is the taste. The juice is made from artificial
flavors and sweeteners thus making its taste give a perception of cheap low quality juice. The
packaging has also contributed to this type of positioning. The juice packs are very basic in
design and lack any creativity.
In today’s juice industry, companies have started increasing their fruit concentration as the
people are demanding it. The juices with high concentration of pulp are perceived as better
quality. In case of Shezan people associate it as low quality because of this low concentration of
fruit pulp.
Competitive strategy:
Shezan has the highest production capacity as compared to its competitors.
Shezan is very strong name and can afford to have super production
facilities.
Shezan international is using cost leadership strategy in which all of the
efforts are made to minimize the costs and to provide the masses with your
low cost product. Shezan with this strategy is quite successful in the market
and is able to cope up with the competition quite effectively and efficiently.
On the other hand Nestle uses the differentiation strategy. It attacks the
market with differentiated products but on high price thus providing room for
Shezan to sustain in the market with targeting low income segment
massively.
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The strategy of Shezan gives advantage as there are number of suppliers in
the market that supply material to the industry. But Shezan gets its raw
material from its on farms to get the advantage over its competitors and to
reduce the suppliers bargaining power (Backward integration). Shezan
provides the same product as its competitors are providing, as bargaining
power of buyer is low and many.
CPM Matrix For Shezan:
Shezan Nestle Haleeb Nurpur
Critical Success Factors Weight Rating Score Rating Score Rating Score Rating Score
Advertising 0.2 3 0.6 4 0.8 2 0.4 1 0.2
Product quality 0.15 4 0.6 3 0.45 2 0.3 2 0.3
Price competitiveness 0.1 2 0.2 3 0.3 3 0.3 3 0.3
Management 0.1 3 0.3 4 0.4 3 0.3 3 0.3
Financial position 0.1 4 0.4 4 0.4 3 0.3 2 0.2
Customer loyalty 0.1 2 0.2 2 0.2 2 0.3 3 0.3
Global expansion 0.15 3 0.45 3 0.45 2 0.3 3 0.45
Market share 0.1 3 0.3 4 0.4 2 0.2 2 0.2
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Total 1 3.05 3.40 2.4 2.25
CPM Matrix For Shezan:
In the CPM the industry average take as 3.50, so the Nestle performing is the
best as compared to their competitors in juices.
Shezan is at second place. It deals in nectar juices, flavored juices and
targets the lower income group of the population and its all sales is due to
customer loyalty.
Haleeb lunched its juices few years ago but their performance is good and it
is in third number in field of juices due to their pure and nectar juices with
high quality and reasonable prices.
NurPur, being an unknown brand falls at number four.
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Sr. # Company Generic Strategy
1 Shezan Differentiation
2 Nestle Differentiation focus
3 Haleeb Cost Leadership
4 Nurpur Cost Focus
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As know that nestle is using differentiation focus strategy as it focuses on its
research and development to identify new niches in the market and to enter
in them. Nestle selects a segment do research and develop strategy to enter
that market through differentiated product. Nestle achieve competitive
advantage by dedicating itself to these segments exclusively. The essence of
focus is the exploitation of a particular market niche that is different from the
rest of the industry. Nestle might expect narrow focus itself (“being
different”) is simply not sufficient for above average performance. Nestle
focuses differentiation strategy to improve competitive position. But there
are some disadvantages if this strategy is not properly used. As if we select
the niche with too much rivals it will be easier for the competition to imitate
it easily in a shorter span of time as if nestle launches some new product
Shezan immediately follows it and hence nestle loses its competitive
advantage. Shezan uses the research and development of nestle and
captures its share from the market. But it shows that Shezan is following the
Nestle. This is a weakness in itself because it shows that Shezan has the
potential to become market leader but they do not try to do so.
The strategy of Shezan gives advantage as there are number of suppliers in
the market that supply material to the industry. But Shezan gets its raw
material from its on farms to get the advantage over its competitors and to
reduce the suppliers bargaining power (Backward integration). Shezan
provides the same product as its competitors are providing, as bargaining
power of buyer is low and many substitutes are available in the market with
slight differentiation which do not makes difference so Shezan captures the
market share of the competitors. Shezan competes its competitors like
nestle and Haleeb is discussed in the above paragraph.
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Industry Life Cycle
Industry
Shezan
To us the juice industry is at growth stage as new research and development
is taking place and people are getting more conscious about their health
these days. People tend to buy natural juices rather than buying carbonated
drinks. Shezan is also at growth stage by following the Nestle.
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Functional Areas
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Operations:
As seen in the above diagram, Shezan uses various methods of distribution to reach final customers. Use
of agents and wholesaler as well as their own logistics help them cover vast area but this strategy
sometimes also backfires through high costs and delays.
Marketing and sales:
The marketing and sales department is responsible for making forecasts, establishing sales target
and quotas, making promotional plans, advertising the product and satisfying the end user’s
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need. Marketing mainly focuses on the 4P’s which are product, price, promotion and placement.
We will be examining each P with respect to Shezan juices.
Organizational Structure:
The structure of a company refers to the communication system that has
been used in the firm and the authority that links employees and staff
together to serve the organizational goals and objectives and to achieve the
tasks that are provided by the company.
Structure can be described in the form of an organization chart. Shezan's
organizational chart shows that it has functional structure.
Functional: In functional structure people with similar skills and performing
closely related activities are placed together in formal group. They are
expected to work together to perform a critical function for the total
organization. Common functional departments of Shezan are:
1. Marketing
2. Finance
3. Production
The current structure of Shezan is doing well so there is no need to change
it, For such diverse product company, functional structure is appropriate.
People from different areas and with different skills are put together to work
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which increases the productivity and bring effectiveness and efficiency to the
firm.
Organizational Culture:
Shezan International has excellent organizational culture. The culture is very
professional but yet very enjoyable, the environment is very easy and
casual. Shezan international gives lot of importance to its junior employees
and seniors are always ready to listen to their juniors and are also willing to
act upon their advices and suggestions if considered feasible. Employees are
free to pursue and select their goals and objectives and HR department is
always there for employees to provide them with the best guidance. The
employees of Shezan believe that it is the company of reality and
understanding, where the employees are never for granted.
Shezan is into the business of diverse products, from juices to jams to
ketchups to pickles and thus they recruit people from different areas which
give them opportunity to excel and advance.
The company also offers employment benefits program but the workload is
extreme there. The priority is always given to the job by the staff. The
employee working there declares Shezan international a best place to work
in and to make a reputable name in the corporate market, with a very open
career ahead.
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Financial Analysis of the Company
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Financial Analysis:
The part will focus on the operations Shezan International Limited for the fiscal years starting
July, 1st, 2007 to the fiscal year ending June, 30th, 2011. This chapter includes the analysis of
the company through different measures and tools of analysis used by analysts in order to
analyze the situation of a company; these measures include the analysis financial statements,
short-term liquidity analysis, capital structure and solvency ratios, return on invested capital
ratios, asset utilization ratios and analysis of profit margin ratios etc. The study covers all the
aspects usually considered by the stakeholders of the company. The profits and losses, liquidity
position, changes in owner’s equity, movements in assets and liabilities, and all such factors will
discussed later in the report of the project.
Shezan international Limited has gone through ups and down over the period of analysis (five
years ending ‘11), but there was an overall trend of growth in the company. The company holds
a good reputation in the market which can be considered as a factor of its rising movement in
share price; its shares are currently been traded at an average price of Rs. 219.
This analysis is based upon the facts collected through the annual financial reports of Shezan
international limited, online information available on the official web site of Shezan
international, and other news sources.
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Analysis of Income statement
Shezan Income Statement
2007 2008 2009 2010 2011
Sales 2,174,8
942,468,5
722,728,7
093,528,1
344,221,8
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Cost of sales 1,489,8
451,691,4
431,974,4
462,591,7
903,130,5
44
Gross profit685,04
9777,12
9754,26
3936,34
41,091,2
83
Distribution cost 289,33
6368,24
0443,86
2580,49
2629,91
2
administrative costs 68,213 78,951 91,449101,41
3116,60
5other operating expenses 70,145 72,555 71,979 90,702
122,601
other operating income -13,240 -19,880 -20,155 -19,448 -28,798
414,454
499,866
587,135
753,159
840,320
operating profit 270,59
5277,26
3167,12
8183,18
5250,96
3
finance cost 12,940 8,104 6,542 17,950 40,343share of loss from associate 760 16 16 18
profit before taxation 257,65
5268,39
9160,57
0165,21
9210,60
2
taxation 116,98
1107,19
5 58,099 58,474 70,000
net profit for the year140,67
4161,20
4102,47
1106,74
5140,60
2
Financial performance of a company can be fairly assessed by an income statement as it gives a
summary of how the business incurs its revenues and expenses through both operating and non-
operating activities. Notes to the statements helps to look things into details.
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The five year income statements show that the company is in a good position. The Sales, the
Gross Profit and the Net Profit for the year have shown a continuous rising trend over the last
five years. The Net Profit has increased till 2010 but in 2011 it was decreased. The profits of the
company have massively increased solely and even in comparison with the increase in sales.
Therefore, rising sales is not the only factor of increasing profits; the company has controlled its
cost of sales and operating expenses quite impressively even after drastic rise in energy costs and
energy crises in the country.
The rise in finance costs is way too much in the last year which has caused the profit to decrease.
A moreover high cost of sale is another cause of decrease in profits.
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Analysis of Balance sheet
Shezan Balance sheet 2007 2008 2009 2010 2011
ASSETS Non- Current Assets Property, plant and equipment 256,787 292,922 299,770 416,802 423,097Long term investments 25,591 9,915 7,724 7,708 7,690long term deposits 1,938 2,603 2,661 2,588 2,314
284,316 305,440 310,979 427,495 433,769Current assets Stores and spares 1,348 1,091 18,796 15,081 6,997
stock in trade 610,903 689,438 755,711 842,4821,159,55
1trade debts 59,749 74,892 86,291 135,317 165,627Advances, deposits ,prepayments 13,729 38,897 37,113 18,183 14,683income tax recoverable 42,116 114,255 74,651 59,886 57,656cash and bank balances 108,186 84,042 70,844 99,509 82,608
836,0311,002,61
51,043,40
61,191,95
81,511,80
0
Total assets 1,120,34
71,308,05
51,354,38
51,619,45
31,945,56
9
EQUITY AND LIABILITIES Share capital and reserves share capital 50,000 60,000 60,000 60,000 60,000Reserves 425,000 500,000 583,449 653,022 723,293inappropriate profits 150,696 176,900 134,371 135,116 169,718Total Equity 625,412 736,700 777,820 848,138 953,011
Long term liabilities 57,281 51,858 45,962 91,121 71,747
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Current liabilities 437,654 519,497 530,603 680,194 920,811
Total liabilities 494,935 571,355 576,565 771,315 992,558Balance sheet is one of the three major financial statements of a company, the other two being
income statement and statement of cash flows. It shows the position of the company at a certain
point in time.
The Assets of the company have shown an increasing trend and so have the liabilities and equity.
To further look into the picture we can see that the company’s Assets have increased by 73 %,
liabilities by 100 % and Equity by 52.4%. The rise in assets was obviously partly financed by
liabilities and partly by equity but the major portion was the liability one. Liabilities from the
very beginning are the major proportion of the assets.
There is an overall a rising trend in almost every component of the balance sheet. Long term
finance has increased greatly. Trade debts, stock in trade and other stores are the major
proportion of current assets. The company needs to focus on rising trade debts. Moreover the
balance depicts a satisfactory picture of the company.
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Profitability ratios analysis:
Gross profit margin 2007 2008 2009 2010 2011Shezan 31.50 31.48 27.64 26.54 25.85Nestle 28 26 29 27 26Tops 26.98 29.57 28.34 32.22 33.82
Gross profit margin is an indication of the total margin which is available to cover operating
expenses and yield a profit. The gross profit of Shezan in 2007 was 31.50% which has decreased
over the years and in 2011 it was 25.85. Since sales have increased in this period, the reason for a
decreasing trend in gross profit margin is increase in cost of goods sold. Nestlé’s gross profit
margin has also showed an overall decreasing trend whereas the gross profit margin of Tops has
shown an increasing trend.
Operating profit margin 2007 2008 2009 2010 2011Shezan 12.44 11.23 6.12 5.19 5.94Nestle 12 12 14 13 13Tops 9.55 16.50 15.85 19.41 22.39
The operating profit margin is an indication of the firms’ profitability from current operations
without regard to the interest charges accruing from the capital structure. The operating margin
of Shezan shows a decreasing trend. In 2007 the operating profit margin was 12.44% whereas it
decreased to 5.94% in 2011.this means that the operating expenses of Shezan has increased
over these years which include distribution cost, administrative costs. On the other hand
operating profit margin of Nestle and Tops has increased over this time period. This means that
they have reduced their operating expenses which resulted in greater profit margins.
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Net profit margin 2007 2008 2009 2010 2011Shezan 6.47 6.53 3.76 3.03 3.33Nestle 9 7 10 11 10Tops -1.05 12.60 8.81 12.23 15.52
The net profit margin shows after tax profit per rupee of sales. Sub-par profit margin indicates
that the sales prices are relatively low or that its costs are relatively high.Net profit margin of
Shezan has decreased over this time period from 6.47% in 2007 to 3.33% in 2011. The reason
for this is the increase in the interest charger and other expenses which have resulted into
deteriorating profit margin. On the other hand the net profit margin for Nestle has increased from
9% to 10% and for Tops it increased from -1.05% to 15.52%.The reason for this is the decrease
in Interest charges and other expenses.
Return on Assets 2007 2008 2009 2010 2011Shezan 12.56 12.32 7.57 6.59 7.23Nestle 11.46 9.34 16.18 17.94 13.28Tops -0.84 5.32 4.82 7.06 10.49
Return on assets measure the return on total investment in the organization. It is sometimes
desirable to add interest or after tax profit to the numerator of the ratio since total assets is
financed by creditors as well as stock holders; hence it is accurate to measure the productivity of
the assets by the returns provided to both classes of investors. The return on assets for Shezan
has decreased over the period from 12.56% in 2007 to 7.23% in 2011. This is solely due to the
decrease in net profit for the company. On the other hand the return on assets of Nestle and Tops
shows and overall increasing trend due to the increasing trend of their profits.
Return on Equity
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2007 2008 2009 2010 2011Shezan 22.49 21.88 13.17 12.59 14.75Nestle 2.41 2.07 4.01 5.48 6.22Tops -1.14 6.10 5.54 8.33 12.28
Return on equity measure the rate of return on the stockholders investment in the business.
Return on equity of Shezan has decreased over this time period of five years from 22.49% in
2007 to 14.75% in 2011. The reason for this decrease is the decrease in the net income of the
company over these years. Whereas Nestle and Tops return on equity showed an increasing trend
over the years. Return on equity of Tops has increased tremendously from -1.14% in 2007 to
12.28% in 2011.This was due to a tremendous increase in the profitability of the company.
Return on Common Equity 2007 2008 2009 2010 2011Shezan 22.49 21.88 13.17 12.59 14.75Nestle 2.41 2.07 4.01 5.48 6.22Tops -1.14 6.10 5.54 8.33 12.28
Return on common equity measure the rate of return on the common stockholders’ investment in
the business. Return on common equity of Shezan has decreased over this time period of five
years from 22.49% in 2007 to 14.75% in 2011. The reason for this decrease is the decrease in the
net income of the company over these years. Whereas Nestle and Tops return on equity showed
an increasing trend over the years. Return on equity of Tops has increased tremendously from -
1.14% in 2007 to 12.28% in 2011.This was due to a tremendous increase in the profitability of
the company.
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Earning per share 2007 2008 2009 2010 2011Shezan 2.81 2.69 1.71 1.78 2.34Nestle 39.81 34.24 66.27 90.69 102.94Tops 12.20 14.93 16.45 18.21 30.02
Earnings per share show the earnings available to the owners of the common stock. The earnings
per share of Shezan Shows that it decreased from 2.81 in 2007 to 1.78 in 2010 but again
increased to2.34 in 2011 which is a positive sign for common stock holders. On the other hand
earnings per share of Nestle have increased tremendously from 39.81 in 2007 to 102.94 in
2011.this was due to the increase in the profitability and efficiency of operations in Nestle.
Earnings per share of Tops have also increased from 12.20 in 2007 to 30.02 in 2011 because of
high profits.
Overall Profitability analysis:
The profitability of Shezan compared to industry is under threat implying that Shezan is not
managing its operations efficiently as the income statements shows that finance cost,
administrative cost, distribution charges, and cost of goods sold and taxes all have increased. The
major reason behind this trend is the rising inflation in Pakistan which has compelled Shezan’
costs to rise
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Liquidity Ratio Analysis:
Current ratio 2007 2008 2009 2010 2011Shezan 1.91 1.93 1.97 1.75 1.64Nestle 0.94 1.07 0.85 0.85 0.80Tops 2.54 2.79 2.79 2.72 3.16
Current ratio indicates the extent to which the claims of short term creditors are covered by
assets that are expected to be converted into cash in a period roughly corresponding to the
maturity of the liabilities. The ideal current ratio should be 2:1 which means that the company
can give 2 assets to pay a liability. Shezan’s current ratio has decreased over the years from 1.91
in 2007 to 1.64 in 2011 but still it is not considered as a threat. On the other hand Nestlé’s
current ratio is very low which has further decreased over this time period. It was 0.94 in 2007
and decreased to 0.8 in 2011. Tops have a very good current ratio which has an increasing trend.
It was 2.54 in 2007 and increased to 3.16 in 2011.
Quick ratio 2007 2008 2009 2010 2011Shezan 0.51 0.60 0.54 0.51 0.38Nestle 0.54 0.60 0.37 0.38 0.38Tops 1.51 1.43 1.43 1.53 1.72
Quick ratio is a measure of a firm’s ability to pay off short term obligations without relying upon
sale of inventories. The quick ratio of Shezan has a decreasing trend from 0.51 in 2007 to 0.38 in
2011. The reason is that more inventories are being stocked. Moreover Nestlé’s quick ratio has
also decreased from 0.54 in 2007 to 0.38 in 2011. It is also because of increase in inventories of
finished goods at year. However Tops has increased its quick ratio in 2011 from 1.53 to 1.72.
This is because more of the inventories were converted into sales.
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Inventory to net working capital ratio 2007 2008 2009 2010 2011Shezan 1.53 1.43 1.47 1.65 1.96Nestle -6.75 6.59 -3.15 -3.17 -2.08Tops 0.67 0.76 0.76 0.69 0.67
Inventory to net working capital ratio measures the extent to which the firms’ working capital is
tied up in inventory. The inventory to working capital ratio for Shezan has an increasing trend
over this time period because more inventories is being tied with the working capital. In 2007 the
ratio was 1.53 whereas in 2011 the ratio was 1.96.This increase is due to the increase in the
inventory of finished goods which is held. Nestle is also not doing well , it has a negative
working capital ratio therefore the inventory to net working capital ratio is also negative. Tops is
doing good because it has a low ratio which is maintained over the period.
Financial Leverage:
Debt to Equity ratio 2007 2008 2009 2010 2011Shezan 0.79 0.78 0.74 0.91 1.04Nestle 0.98 1.17 0.95 1.00 1.03Tops 0.29 0.03 0.03 0.04 0.08
Financial leverage refers to the use of the debt capital in a company to finance its assets. The Share
holders of the company are interested to know the leverage position of a company. Even though debt is
cheaper, it is considered riskier compared to equity and a huge threat to the company. This portion
discusses the risk arising from leverage position on Shezan International Limited. Comparing the
leverage position of Shezan with Nestle and Tops we can see that Tops is in a very better
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position as it is financing almost 90% of its assets and operations from equity financing. It is not
a highly leveraged firm. Its long term debt to equity is 0.22 so most of its long term investments
and projects are financed by it equity. Shezan on the other hand is financing 100% of its assets
through debt which is very risky
Debts to Assets ratio 2007 2008 2009 2010 2011Shezan 0.44 0.44 0.43 0.48 0.51Nestle 0.26 0.31 0.23 0.24 0.22Tops 0.21 0.03 0.03 0.04 0.07
The debt to assets ratio shows you how much of your asset base is financed with debt. If this
ratio is 100% it means your company is bankrupt. It is very important to keep your debt to asset
ratio in line with the industry. Debt to Asset ratio for Shezan has increased over the years from
0.44 in 2007 to 0.51 in 2007.This means that Shezan has financed its 51% of the assets with debt.
Nestle has maintained the ratio to around 23-24% in this time period. Whereas Tops has a very
low ratio of 0.07 which means that only 7% of the assets are financed by debts.
Long term Debt to Equity 2007 2008 2009 2010 2011Shezan 0.09 0.07 0.06 0.11 0.08Nestle 0.02 0.02 0.03 0.02 0.02Tops 0.29 0.03 0.03 0.04 0.08
Long term debt to equity measures the balance between debt and equity in the firms long term
capital structure. Long term debt to equity ratio for Shezan had a decreasing trend till 2009
where it dropped to 0.06 from 0.09 but increased in 2010 to 0.11 but again decreased to 0.08 in
2011.This means that a major chunk of long term debt was repaid. Nestle has maintained this
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ratio to 0.02 over this time period where as fluctuations can be seen in the long term debt to
equity ratio for Tops.
Times Interest Earned 2007 2008 2009 2010 2011Shezan 20.91 34.21 25.55 10.21 6.22Nestle 6.01 7.37 12.61 13.37 8.05Tops 157.81 482.11 66.42 209.25 180.39
Times interest earned measures the extent to which firms earnings can decline without the firm
becoming unable to pay it financial obligations. The ratio for Shezan has declined from 20.91 in
2007 to 6.22 in 2011 which is not a good sign for the company. This is solely due to the decrease
in profits in recent years. Nestlé’s ratio has also declined from 13.37 to 8.05 which is again not a
good sign. Tops Ratio has fluctuated over this time period but since it’s so high, paying its
financial obligations is not a issue for Tops. In 2011 times interest earned ratio was Tops was
180.39 which means that Tops has excess cash to pay its interest cost.
Fixed Charge coverage 2007 2008 2009 2010 2011Shezan 6.25 4.70 4.02 3.08 2.87Nestle 5.16 5.83 10.16 12.16 7.96Tops 43.74 121.24 45.35 147.77 123.97
Another method to see whether a firm can pay its fixed charges is to calculate the fixed charge
coverage ratio. This ratio for Shezan has an overall decreasing trend during this time period. It
was 6.25 in 2007 and decreased to 2.87 in 2011. The reason is the decrease in the profits of the
company. Nestles fixed charge coverage has also decreased from 12.16 in 2010 to 7.96 in 2011.
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Whereas Tops fixed charge coverage ratio has increased tremendously from 43.74 in 2007 to
123.97 in 2011. It has excess money to pay off its fixed charges.
Activity Ratio Analysis:
Inventory turnover 2007 2008 2009 2010 2011Shezan 3.56 3.58 3.61 4.19 3.64Nestle 9.4 10.3 9.2 8.9 8.2Tops 3.70 3.40 4.41 4.33 4.19
Inventory turnover provides an indication of whether the company has excess or inadequate
amount of inventory of finished goods. When the ratio is compared to the competitors, it is seen
that Shezan ha low levels of inventory as compared to Nestle or Tops. Shezan had inventory
turnover ratio of 3.56 in 2007 and 3.64 in 2011. Nestle has a ratio of 9.4 in 2007 and 8.2 in
2011.Tops inventory turnover ratio has increased over the period from 3.70 in 2007 to 4.19 in
2011.
Fixed asset turnover 2007 2008 2009 2010 2011Shezan 7.65 8.08 8.77 8.25 9.73Nestle 2.81 3.15 3.54 3.56 3.00Tops 1.71 0.57 0.73 0.83 1.05
Fixed asset turnover is a measure of sales productivity and utilization of the plant and equipment.
The ratio for Shezan has increased over the years from 7.65 in 2007 to 9.73 in 2011. This is
solely due to the increase in sales of Shezan. The ratio for nestle fluctuated over this time period
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and is low as compared to Shezan. However Tops ratio of fixed asset turnover has increased to
1.05 in 2011 but still it is low as compared to Shezan.
Total asset turnover 2007 2008 2009 2010 2011Shezan 1.94 1.89 2.01 2.18 2.17Nestle 1.79 2.06 2.22 2.25 1.84Tops 0.80 0.42 0.55 0.58 0.68
Total asset turnover is a measure of the utilization of the firm’s assets. The ratio for Shezan has
increased over the years from 1.94 in 2007 to 2.17 in 2011. This is solely due to the increase in
sales of Shezan. The ratio for nestle fluctuated over this time period and is low as compared to
Shezan. It increased till 2010 to 2.25 but decreased to 1.84 in 2011. However Tops ratio of total
asset turnover has decreased to 0.68 in 2011 and is low as compared to Shezan.
Average collection period 2007 2008 2009 2010 2011Shezan 10.03 11.07 11.54 14.00 14.32Nestle 14.25 15.22 16.87 18.64 19.01Tops 12.41 18.47 14.25 5.50 6.02
Average collection period indicates the average length of time the firm must wait after making a
sale before it receives payment. The average collection period for Shezan has an increasing
trend. It increased from 10.03 in 2007 to 14.32 in 2011 which means that now Shezan has to wait
more to receive payments. This ratio for Nestle also had an increasing trend; it increased from
14.25 in 2007 to 19.01 in 2011. As compared to Shezan Nestle wait more days to receive
payment. The ratio for Tops fluctuated but as compare to others it has the lowest ratio of 6.02
which means that Tops has to wait less than other to receive payment for credit sales.
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External Factor Analysis (EFE) :
External Factors Weight Rating W. Score Comments
Opportunities
Increased demand for low priced juices in African countries
0.15 4 0.6Increased exports to
Africa
Increasing size of Juice market in Pakistan
0.07 3 0.21 Expand network
Younger demographic largest segment of population
0.05 4 0.2Targeting younger
demographic
Increased investment in food& beverage companies on stock exchange
0.02 3 0.06Current shareholders
satisfied
Falling value of Rupee, greater quantities demanded abroad
0.05 4 0.2Capitalizing on
increased exports
Demand for multitude of flavors 0.03 2 0.06 Limited set of flavors
Possibility of further backward integration
0.05 3 0.15Incorporation of fruit
farms in portfolio
Potential for conglomerate
diversification0.03 2 0.09 conduct feasibility
Distribution network allowing for piggybacking of products
0.05 4 0.2Multiple products
using same channels
Modification of operations to keep abreast of new age practices
0.02 2 0.04Technologically not
up to date
Threats
‘Non-Islamic’ stigma associated with Ahmedis in Pakistan
0.1 3 0.3Distance Shezan from
religious views
Decreasing power of the brand name Shezan
0.09 2 0.18Revitalize through
increased brand image
Intense competition 0.04 3 0.12Improved IMC for counter-measures
Increasing inflation rate 0.02 4 0.08Good margins despite
rising costsPerceived lack of quality 0.05 2 0.1 Build on brand image
Increasing nutritional awareness 0.07 2 0.14Need to position juice
as a healthy alternative
Market moving towards fragmentation 0.03 3 0.09 Need for multiple
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lines
Waste management 0.03 3 0.09 Good sense of CSR
Rapidly changing technology 0.02 2 0.04Need for new age
practices
Political instability 0.03 3 0.09Corporate stability
despite political environment
Total 1.00 - 3.04 -
Internal Factor Analysis (IFE):
Internal Factors Weight Rating W. Score Comments
Strengths
Financially strong 0.15 5 0.75Excellent financial track
record
Variety of products 0.03 3 0.09Good utilization of
products
Comprehensive distribution network
0.09 4 0.36Multiple products
distributed
High inventory turnover rate 0.02 4 0.08 High efficiency
ISO certification 0.03 3 0.09 Sign of quality
Excellent R&D team 0.05 4 0.2Ability to produce new
designs
Passionate owners 0.03 4 0.12 Good commitment
Global scale of operations 0.1 4 0.4 Ever expanding reach
Brand name value 0.05 3 0.15Shezan still recognized
positively
High operational expertise 0.02 3 0.06 Efficient performance
Weaknesses
Lack of innovation 0.05 2 0.1 Unable to innovate
Lack of awareness of product quality
0.1 2 0.2Need to communicate high fruit concentrate
Vendor Relations not prioritized 0.05 3 0.15Need greater
communication with vendors
Decreasing Employee Morale 0.02 2 0.04Need motivational
techniques
Ineffective positioning strategy 0.03 2 0.06 Need to reposition Juice
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Lack of defined long term corporate planning & strategy
0.05 2 0.1 Hire outside consultants
Limited funds for promotional budget
0.02 3 0.06Promotional budget as a
function of sales
Lack of flavor variety 0.03 2 0.06 Introduce more flavors
Lack of mainstream advertisement 0.02 2 0.04 Increase budget
Product strategy and promotion strategy not synchronized
0.03 2 0.06 Synchronize both
Total 1.00 - 3.17 -
Strategic Factor Analysis:
Key Strategic Factors Weight Rating W.Score Duration
External Factors
(O) Demand increase in Africa 0.15 4 0.6 Long term
(O) Increasing market size 0.05 4 0.2 Long term
(O) Backward integration 0.05 3 0.15 Intermediate
(O) Large younger demographic 0.05 4 0.2 Long term
(T) Non-Islamic stigma 0.03 2 0.06 Short term
(T) Decreasing brand value 0.07 2 0.14 Intermediate
(T) Nutritional awareness 0.07 2 0.14 Long term
(T) Increasing competition 0.05 3 0.15 Intermediate
Internal Factors
(S) Financially strong 0.1 4 0.4 Long term
(S) Global operations 0.1 4 0.4 Long term
(S) Huge distribution network 0.05 4 0.2 Long term
(S) R&D 0.03 3 0.09 Long term
(W) Positioning 0.05 2 0.1 Short term
(W) Product quality awareness 0.03 2 0.06 Intermediate
(W) Vendor relationship 0.05 2 0.1 Intermediate
(W) Corporate strategy 0.07 2 0.14 Long term
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Total 1.00 - 3.13 -
Internal-External Matrix (IE):
TotalEFEScore
Total IFE ScoreStrong
(3.0-4.0)Average (2.0-2.99)
Weak (1.0-1.99)
High(3.0-4.0)
IShezan
II III
Medium(2.0-2.99)
IV V VI
Low(1.0-1.99)
VII VIII IX
Scores of 3.17 & 3.04 show that Shezan is placed in the first quadrant, meaning that it is in a strong position to avail the external opportunities using its strengths and to minimize weaknesses and threats using a combination of strategies listed in the SFAS.
I-E matrix shows that Shezan is in a position to “grow and build”; It is recommended that Shezan consider backward integration, which would result in maximum utilization of the current position of the company and allow it to grow through concentric (linked) diversification in a way as to capitalize upon the current opportunities in the market through its strengths. [Further strategy planning is provided in the TOWS matrix]
SPACE Matrix:
*Internal: (-6 worst, -1 best) | External: (6 best, 1 worst)
Internal Strategic Position External Strategic Position
Competitive (CA) Industry (IS)
Product Quality -1 +5 Suppliers
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Market Share -4 +6 Growth potential
Brand Image -3 +2 Degree of rivalry
Life Cycle -3 +3 Substitutes
Average -2.75 4 Average
Total X Axis Score = 1.25
Financial (FS) Environmental (ES)
ROE -2 +4 Technology
Working Capital -1 +1 Inflation
Inventory Turnover -1 +3 Variability
Leverage -4 +4 Barriers to entry
Average 2.0 3 Average
Total Y Axis Score = 1.0
Plotted SPACE Matrix:
Conservative Aggressive
Defensive Competitive
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45
The suggested strategy based on the SPACE matrix analysis is that of the aggressor and as such
positive, proactive steps should be taken by Shezan to ensure further growth.
It should also be noted that the suggested strategy based on the SPACE Matrix is in line with the
analysis of the I-E Matrix, hence providing further strength to the overall strategic plan.
TOWS Matrix:
IFAS
\
EFAS
Strengths (S)
1. Financially strong
2. Global operations
3. Huge distribution network
4. Brand name
5. R&D
Weaknesses (W)
1. Lack of innovation
2. Product quality awareness
3. Vendor relationship
4. Positioning
5. Corporate strategy
Opportunities (O)
1. Demand increase in Africa
2. Increasing market size
3. Large younger demographic
4. Backward integration
5. Falling Rupee value
SO Strategies
1. Increase supply to Africa
(S2,O1)
2. Buy farms to increase
backward integration
(S1,O4)
3. Create more availability in
the market (S3,O3)
4. Leverage brand name to cater
to market (S4,O2)
5. Increase operations overseas
(S1,O5)
WO Strategies
1. Look for newer markets
(W1,O1)
2. Reestablish vendor-firm
agreements (W3,O2)
3. Establish consistent strategy
for supply chain (W5,O4)
4. Reposition juice to new
target segments (W4,O3)
5. Establish 5 year plan
incorporating foreign exports
(W5,O5)
Threats (T) ST Strategies WT Strategies
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Support Activitie
1. Decreasing brand value
2. Non-Islamic stigma
3. Nutritional awareness
4. Increasing competition
5. Perceived quality
1. Establish a new corporate
image (S5,T1)
2. Incorporate patriotic themes
(S1,T2)
3. Understand consumer
nutrition preferences (S5,T3)
4. Cover a wide area of region
(S3,T4)
5. Use brand equity as quality
assurance (S4,T5)
1. Utilize foreign expertise in
innovation (W1,T5)
2. Develop healthy juice
alternatives (W4,T3)
3. Focus on brand building
(W2,T1)
4. Benchmark with industry
leaders (W5,T4)
5. Partner with local ‘Islamic’
spokespersons (W5,T2)
Value Chain Analysis:
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING & SALES
SERVICES
Fruit Pulp Heat exchange
Establish Centers
Celebrity Endorsement
Strategic Management MBA-V
Firm InfrastructureShezan applies hierarchical set-up within
formalized management structureHuman Resource Management
New employee initiative, OJT, mentor programs and remuneration strategy
Technology DevelopmentContinuous research initiative, flavor development and automation change
ProcurementBackward integration allows, purchase of fruit
from self-owned farms
Profit Margi
n
47
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
MARKETING & SALES
SERVICES
Mixing Retail promotions Customer Feedback
Packaging Packing Distribute juices
Sales training
Primary Activities
Activity Valuable? Rare? Substitutes? Difficulty of Imitation
Inbound Logistics Yes Yes Few High
Operations No No Many Medium
Outbound Logistics Yes No Few High
Marketing & Sales Yes No Many Low
Services No No Many Low
Identified Sources of Competitive Advantage: Inbound & Outbound Logistics
Grand Strategy Matrix:
Rapid Growth
Quadrant II Quadrant I
Shezan
WCP SCP
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Quadrant III Quadrant IV
Slow Growth
*WCP=weak competitive position; SCP=strong competitive position
The Grand Strategy Matrix, which is made by overviewing all the other matrices, shows that
although there is rapid market growth (local & abroad), Shezan is in a weak competitive position
when comparing it to market leader Nestle as well as other strong competitors like Olfrute. It is
suggested that Shezan utilize the previously mentioned strategies and reposition itself in such a
manner as to improve its competitive position in the minds of the consumers. This, it is felt is
necessary for survival and is the single biggest change that needs to be implemented.
Major issues and problems:
Their overall Distribution is not properly integrated. They are not sharing information with each
other. The logic behind identifying this problem is that they have their own farms and they are
getting most of their raw material for the production from their own suppliers. And sometime
when the raw material is reached at the warehouse for storage, the quality of fruits is not up to
the standard and therefore they have to reject the supply.
The point is, if they have their own supplier why can’t they check the quality of their raw material before dispatching it to the production plant. They are not sharing information and that’s why when the supply is rejected, they have to face loss of time and their production has to face lack of raw material.
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Recommendation:
First of all they have to improve their overall supply chain. They have main problems in their
supplying side and the distribution channel. The problem of their raw material can be solved if
they start inspecting their raw material for pulp formation at the farm before dispatching the
supply. And they should use better trucks in which the quality of the fruits is not damaged. And
when they temporary store their raw material in the warehouse, they must not store it for a long
time and they should keep it in a dry and safe place.
They should reduce their inventory of fruits to a minimum level and move towards the just in
time supplies. In this way they will be able to save the time which is wasted after rejection of raw
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material due to poor quality or poor handling or poor storage. Their major delays in their supply
chain are at the raw material incoming and in cold storage waiting for distribution.
They should make their relations with the salesman on long term basis, and not on short term
contract basis. Because then they are hired for short term, they do not give the productivity
which is needed in the full demand season. They are not able to deliver on time and that’s why
they lose their next orders from retailers. They should make long term relations with their
salesmen and they should be trained well so that they can deliver the products on time.
And for other distributers like in Faisalabad and Multan, they have to discourage them to not
give the product to smaller distributors for distribution. Because in this way they are facing two
main problems, one is that it takes more time for the product to reach to the retail shop and
secondly when the product is reaching the retailer after passing through two distribution channels
, the price of their product is increased as compare to Lahore city. When the customers have to
pay more for the same product, they will start switching to other brands.
Right now, they have a centralized distribution center in Lahore. They are distributing the
products from the production plant facility. They should focus on primary and secondary
distribution centers so that the On Shelf Availability of their products in the markets and shops is
increased and their existing customers do not switch to other brands.
Conclusion:
As according to what we observed from the Shezan’s Strategies we have found that Shezan is
sometimes proactive and some time it adopts reactive approach. Shezan is very much conscious
and careful about its sales and about the customer satisfaction level and since 1964 they tried to
maintain a same graph of satisfaction level and give customer a quality, fresh farm products
direct from their own farms. Shezan is very much concerned about its SWOT analysis and
keeping a closer eye on every action it can take for the better of its products.
Every SBU has its own strategies to make and to implement and here at SBU level business
strategy focus more narrowly on their own products. The MD plays an important and central role
for the strategic planning to be more effective not just as a MD but also as a strategic thinker and
corporate culture leader.
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Shezan’s management deals with developing a marketing mix to serve a designated market.
Their main focus is on the strategies at SBU level where Shezan make their strategies
considering three forces:
Customer
Competition
Corporation
And in addition to this internal and external factors also play an important role to develop
strategy.
Shezan is concerned about the external information pertains on social, economic, political and
technological trends and product/market environment. The information is analyzed to identify
the SBU’s strengths and weaknesses, which together with competition and customer define the
objective of SBU.
Shezan is also very concerned about the Corporate Appraisal and for this they keep a closer
interact with all the groups of corporate publics having a stake in the organization. In this context
Shezan is very much concerned about the Financial Position of the company. And they evaluate
this factor very closely for the further decision making of their products.
Strategic Management MBA-V
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